The idea of a business bank or a British Investment Bank is nothing new. Ever since the Macmillan committee reported way back in 1933 there has been concern in the UK about a funding gap.

Several post-Second World War institutions, including the Industrial and Commercial Finance Corporation and Finance for Industry were intended to address this need before being sucked into the private equity vortex.

Nor is such government intervention particularly alien to free market economies. The US has a vast Small Business Administration, backed by government guarantees, Scandinavia has the Nordic Investment Bank and Germany the KfW.

'Business bank': Vince Cable should recruit a commercial boss and an experienced board of directors with the ability to make sensible loan decisions

What the UK business bank should not
be is just a new vehicle for bundling together a series of
malfunctioning existing loan schemes, under the control of civil
servants, before declaring job done.

If
Vince Cable is really serious about his £1billion capitalised lender
(capable of lending £10billion) then he must recruit a commercial chief
executive and a high powered board of directors with experience of
venture capital and the ability to make sensible loan decisions.

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Clearly,
small businesses find it difficult to borrow long-term on favourable
terms. Britain, unlike the US, lacks a really robust and well-funded
venture capital sector willing to back good technologies and patents and
able to intervene so that firms – such as Misys – do not have to
migrate to San Francisco to guarantee the future.

Ideally,
the business bank would be up and running quickly given the urgent need
to underpin growth. But the intelligence we are receiving suggests it
may need primary legislation and could take 18 to 24 months.

Better late than never but the lack of willpower and heft is dispiriting.

Adviser thrust

There
are two categories of mergers. Those driven by the principals as in the
case of Glencore-Xstrata and those where the advisers take the lead.

The
EADS-BAE deal, where there are an estimated £62million ($100million) of
fees at stake, looks to be in the latter group. The main driver behind
the transaction is Tim Shacklock of Gleacher Shacklock who has been
advising BAE for more than two decades, having previously worked for
Kleinwort. He is supported by Simon Robey of Morgan Stanley.

That
Morgan Stanley is on the BAE ticket should not come as a major surprise
given the American firm’s association with Cabinet Secretary Sir Jeremy
Heywood.

Indeed, my
first meeting with Heywood was at Morgan Stanley’s Mayfair townhouse
some years ago when he was providing advice to New Labour on selling
government assets. One longstanding employee of BAE recorded that
Shacklock has long been an exponent of a trans-European deal for BAE and
was instrumental in the failed attempt to put the company together with
Germany’s DASA in 1998. The deal eventually was derailed when BAE opted
instead for an all-British defence merger with GEC’s Marconi arm.

Similarly,
EADS chief executive Tom Enders is largely relying on the advice of an
old pal Dietrich Becker of Perella Weinberg, who acted for the Germans
when the Airbus maker was formed. Another veteran deal maker Bernard
Taylor, formerly of Flemings, is also on the EADS ticket, now wearing a
boutique armband in the shape of Evercore.

As
is now the custom with big transactions, the ‘bulge bracket’ big
investment banks are brought in to provide the financial muscle. If
there are big fees to be had, everyone wants a share of the action. So
Goldman Sachs finds itself on the BAE team and Bank of America Merrill
Lynch has muscled in on EADS.

Investment
bankers are very good at putting deals together and creating structures
for the new enterprise but not particularly good at politics or
thinking long-term.

So a
deal now seems far more attractive to them than allowing BAE to trade
its way through its debt and pension deficit overhang.

It
helps BAE, no doubt, that Heywood is at Number 10. But this isn’t Paris
or Berlin. Washington holds the key to BAE’s future through the
‘Special Security Arrangement’ it has forged with the company.

Given
the prevailing economic nationalism in the US, this is not going to be
lightly jettisoned even if the Prime Minister does become directly
involved. Cameron should remember how Westland almost brought Margaret Thatcher crashing to earth.

Brains trust

Phil Clarke’s chosen forum for getting Tesco UK back on track is the Baldock Group, named after the eponymous Herts town.

Among
the revolutionary discoveries are that the Tesco value range looks
cheap and nasty; people want more frozen foods; sloping shelves show off
goods better and customers don’t want to fight through rows of clothing
to get to the fruit and veg. Funny that.